The New York Times-20080126-Down Day- but Week Is Best of the Year

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Down Day, but Week Is Best of the Year

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After two days of stunning gains, Wall Street ended a tumultuous week with a sharp decline Friday as investors turned cautious and cashed in some of their profits. The Dow Jones industrial average fell more than 170 points but still managed to record its first weekly advance of 2008.

Investors had an initial burst of enthusiasm Friday, sending each of the major indexes up more than 1 percent, after upbeat profit reports from big names like Microsoft and word of a possible buyout of a troubled bond insurer.

But the advance was short-lived, and the eventual decline was not surprising given that investors putting down bets ahead of the weekend were coming off two days of big gains, including 400 points in the Dow.

People may be looking to take some profits off the table in this volatile market. And there's a lot of activity that's coming up next week, said Scott Fullman, director of investment strategy for I. A. Englander & Company.

President Bush is scheduled to deliver his State of the Union address Monday. The Federal Reserve is scheduled to hold its first regularly scheduled meeting of the year Tuesday and Wednesday, and the Labor Department will weigh in on the state of the job market Friday.

The Dow fell 171.44, or 1.38 percent, to 12,207.17, after rising more than 100 points earlier.

The Standard & Poor's 500-stock index fell 21.46, or 1.59 percent, to 1,330.61. The technology-heavy Nasdaq composite index fell 34.72, or 1.47 percent, to 2,326.20.

The Russell 2000 index of smaller companies fell 4.12, or 0.59 percent, to 688.60.

For the week, stocks finished not far beyond where they began. The Dow added 108 points, or 0.89 percent. The S.& P. 500 ended the week up 0.41 percent, and the Nasdaq lost 0.59 percent. Despite the increases logged this week, stocks are still down sharply in the new year.

Wall Street's tone Friday stood in sharp contrast to the intensely dour mood that hung over the market when the week began. While United States markets were closed Monday for Martin Luther King's Birthday, stocks in Asia and Europe plunged amid fears of a precipitous slowdown in the American economy.

To stave off a similar sell-off over recession fears, the Fed stepped in before the opening bell Tuesday with an emergency interest rate cut. Still, the Dow plunged 465 points soon after opening.

The central bank's move to cut rates by three-quarters of a percentage point, to 3.5 percent, helped shore up investors' confidence. Stocks ended Tuesday down, but well off their lows. In an astonishing about-face on Wednesday, the Dow swung more than 600 points and turned a sharp sell-off into huge gains. Stocks then extended their advance Thursday.

The Fed is widely expected to cut rates again at next week's meeting; many analysts expect a half-point cut.

The market might well be following the pattern of past corrections, when huge gains were often followed by some retrenchment.

The market is extremely sensitive to any news that's out there, Mr. Fullman, the investment strategist, said. A year ago, it brushed off a lot of stuff. Now, it's just the opposite, and we're seeing reactions nearly immediately when things come out.

Wall Street still appeared pleased by reports from British newspapers that the billionaire Wilbur L. Ross was in talks to acquire the bond insurer Ambac Financial Group. Financial woes at many American bond insurers have worried investors worldwide who fear that tightness in the credit markets could worsen should one of the companies buckle. Ambac rose 21 cents, to $11.54.

Microsoft finished down 31 cents, at $32.94, after spending much of the session higher. The company raised its forecast for the rest of its fiscal year, which ends in June, and said its quarterly earnings jumped 79 percent.

Light crude oil advanced $1.30, to settle at $90.71 a barrel on the New York Mercantile Exchange.

Government bond prices jumped as stocks declined. The price of the benchmark 10-year Treasury note rose more than a full point, to 105 21/32. Its yield, which moves opposite its price, fell to 3.56 percent, from 3.70 percent.

[Illustration]GRAPH: The Dow minute-by-minute Position of the Dow Jones industrial average at 1-minute intervals yesterday. (Sources: Associated Press; Bloomberg)